Case study

Emergent strategy at Virgin Group

Under the strong and populist leadership of its chief executive, Sir Richard Branson, Virgin Group has pursued an opportunistic strategy to build a company with estimated annual sales of over US$10 billion by 2007. Starting from nothing in 1968, Virgin Group tried a series of strategies over the next 30 years. Its aim was to find opportunities to grow the business on the basis of what became the Virgin brand name and on the strong reputation of its founder and chief executive. The strategic trial-and-error process was essentially emergent, rather than prescriptive. This case outlines some of the main strategies with Virgin’s successes, failures and continuing business developments.

Background to the early years

After an experimental launch of a student magazine, the young Richard Branson developed a small record mail-order business in 1969 to take advantage of the end of resale price maintenance in the UK. He opened his first record shop two years later and subsequently developed it into the Virgin Megastore chain.[1] At the same time, he was attempting to develop a record label by signing up various pop artists of the time. None of these businesses possessed any clear competi-tive advantage, though arguably contractual rights to popular musicians and the Virgin brand itself had some real value. He continued to seek business opportunities using the Virgin brand and, by chance, met up with an entrepreneur wishing to develop an airline business. This eventually led to the Virgin airline business with its first route to New York in 1984.[2] In later years, the company moved into a variety of business ventures – from Virgin Bride and Virgin Cola to Virgin Trains and Virgin Mobile telephones – see Table 2.2. In terms of its strategy, Virgin Group claims to examine business oppor-tunities carefully, seeking an opportunity for ‘restructuring the market and creating competitive advantage’.

Virgin Group’s underlying business strategy

The company has developed its strategy over a number of years. Essentially, Virgin takes the view that there are always opportunities available for the hungry business executive. The underlying business logic has been summarised by Branson thus:

Business opportunities are like buses . . . There’s always another coming along.[3]

In practice, what this means is that Virgin examines new opportunities to see if the group can offer something ‘better, fresher and more valuable’ than existing companies. It looks particularly at markets where the existing customers are not always receiving value for money and where the existing companies have in some cases become complacent – trains, insurance and banking for example – and where the new internet might deliver a business opportunity. This means that the main thrust of the strategy has been to find new market opportunities where the company believes its brand name can create competitive advantage. ‘Contrary to what people may think, our constantly expanding and eclectic empire is neither random nor reckless. Each new business demonstrates our skill at picking the right market and the right opportunity,’ says the Virgin website.

In the last few years, Virgin has focused its strategy on geographical expansion of its existing product portfolio rather than adding products. For example, it has taken its highly successful concept of Virgin Mobile telephones to other countries beyond its UK base. However, it remains opportunistic in its main product areas – for example, its bid to rescue the failed UK bank Northern Rock in 2007. The strategy continues to emerge – both into new countries and into new product areas.

Case questions

1 The Virgin emergent approach to strategy development has not always proved successful – Virgin Bride and Virgin Cola, for example, remain relatively small businesses. Does this matter? Do all emergent strategies have to be successful?

2Critically evaluate Virgin Group’s strategies over the period of the case study. Was the company wise to spend so much time investing in so many new product areas? What would you have done?

Table 2.2 Selected business opportunities developed by the Virgin Group

Year

Business opportunity

1968

First issue of Student magazine – Branson’s first business venture, which was subsequently closed

1970

Start of Virgin Mail Order operation – records sent by mail at cheaper prices than those of record stores

1971

First Virgin Record Store opens in Oxford Street, London, UK

1972

First Virgin Recording Studio

1973

Launch of Virgin Records label plus Virgin Music Publishing – the Sex Pistols were signed in 1977

1984

Virgin Atlantic Airways launched with limited flights between the UK and USA

1985

Virgin Holidays founded (travel agency chain in the UK) – Virgin Hotels then followed in 1988

Virgin Group decides to grow its businesses by a geographic expansionstrategy of existing products and services, while also identifying new products and services in its home country

2003

Virgin acquires stake in the British cable television company NTL, which is re-branded as Virgin Cable

EMERGENT STRATEGY AT THE VIRGIN GROUP: INDICATIVE ANSWERS TO THE QUESTIONS AT THE END OF THE CASE

These answers only make sense in the context of Chapter 2 of the sixth edition.

1. The Virgin emergent approach to strategy development has not always proved successful – Virgin Bride and Virgin Cola, for example, remain relatively small businesses. Does this matter? Do all emergent strategies have to be successful?

The purpose of this question is to explore the meaning of the term ‘emergent strategy’. Thus the starting point in exploring the answer must be a clear exploration of emergent strategy. Virgin provides a useful example – partially captured in the quote from Sir Richard: “Business opportunities are like buses – there is always another coming along.” Some students will detect a lack of respect for the resource-based view here and a greater emphasis on market opportunities – see my StrategicManagement Society Annual Conference Research Paper, Baltimore, October 2003.

If one of the key points about emergent strategic approaches is their experimental nature, then it follows that some experiments are likely to fail. It is unlikely that they will all succeed. Importantly, this does not matter to Virgin Group – however, the payoffs from success must exceed the problems of losses. Otherwise, the group would collapse. An exploration of this aspect of the question may prove useful.

2. Critically evaluate Virgin Group’s strategies over the period of the case. Was the company wise to spend so much time investing in so many new product areas? What would you have done?

The strategies were clearly only partially successful. One of the key decisions was the development of Virgin Atlantic in 1984. This secured the future of the group and allowed the company to explore other business areas in subsequent years. It is worth going through each of the business areas in the Table to examine whether they have been successful – not every class member will know about them all but enough should have some idea to form a judgement.

The issue of investing in so many new product areas is more problematic. There is no simple answer to this question which depends on the strategist’s view of the importance of the resource-based view. If the RBV is important and relevant, then it could clearly be argued that the spread of business opportunities was far too wide – even allowing for the common use of the Virgin brand name and logo. If the RBV is only one of many theories, then arguably it was reasonable to experiment in many business areas. The Virgin website has its own answer to this issue – see www.virgin.com – with a response that suggests the Virgin Group only moves into a new area if it is able to bring something different to a clear business opportunity. Some might comment that this is not consistent with some of its activities over the last few years – for example, what was so new about Virgin Bride and Virgin Cosmetics?